"Radical" changes in the global economy have left Russia in "dire straits," and it should seize the moment to reform, the country's finance minister has told CNBC.

Speaking on the sidelines of the G-20 summit in Istanbul, Russia's Finance Minister Anton Siluanov said: "We all note that lots of changes are happening, and these change are radical and rapid."

Russia's economy has been hit hard over the last year by the severe decline in global oil prices – down around 50 percent since last June -- and Western sanctions imposed on the country for its part in the Ukraine conflict. This, in turn, has caused the ruble to weaken dramatically and pushed up the rate of inflation to around 15 percent.

The "hardships" facing Russia have slowed down the pace of growth, Siluanov said, but should encourage the Russian authorities to reform.

"In the times when all prices were soaring, when inflow of foreign currency was substantial and when the ruble was strong there was lots of room for complacency," he said. "Now that we've found ourselves in dire straits, we have no choice but to carry on with the reform that has been postponed for so long."

Chris Ratcliffe | Bloomberg | Getty Images

Anton Siluanov, Russia's finance minister, speaks during the Global CEO Summit on the opening day of the St. Petersburg International Economic Forum in Saint Petersburg, Russia, May 22, 2014.

His comments come as European leaders try to broker a peace deal between Russia and Ukraine after an escalation in violence between pro-Russian separatists and the Ukraine military. Russian President Vladimir Putin meets with the leaders of France, Germany and Ukraine at a summit in Belarus on Wednesday.

A Russian diplomatic source told Reuters it was 70 percent likely that the the leaders would reach an agreement on the crisis during Wednesday's talks.

The conflict – in which around 5,000 civilians have been killed, according to the United Nations – has also weighed on Russia's economic growth. The country is expected to enter recession this year and could shrink by as much as 5.5 percent, according to ratings agency Moody's -- a far cry from the 5.6 percent gross domestic product (GDP) growth posted in 2008.

In order to avoid a prolonged and "dramatic" slowdown, Siluanov said the government needed to get on with "long-awaited" reforms, including pension and social welfare reform, and should shift from a commodity-driven economy to a focus on manufacturing.

"All of that has been postponed too long and now the time has come, now the need is pressing," he warned.

The U.S., meanwhile, has said it is considering sending arms to Ukraine – a move that Russia said would be considered a security threat. On Tuesday, U.S. President Barack Obama warned his Russian counterpart that if the country continued its "aggressive actions" in Ukraine, "the costs for Russia will rise".

The crisis over Ukraine and other geopolitical events weighing on Russia should not be a reason to postpone reforms, Siluanov insisted.

"There's a proverb that goes: 'Why wait until tomorrow if you can do it today?' So now that the oil prices have fallen and, according to our forecast the price will remain low for a lengthy period of time, we need to use the opportunity to restructure the economy," he said.